If The Launching Of Wal-Mart Organic Product Line May Fail - Essay Example

Essay – Management The consumption of organic food products has been regarded as being beneficial for human health and contributing towards the adoption of positive and green lifestyle choices while, enabling individuals to accept their responsibility of promoting a safer, sustainable and socially responsible environment. While, the benefits of consuming organic foods as opposed to processed items have been acknowledged by a significant faction of society and this notion has gradually progressed into becoming common knowledge there are certain limitations with regard to the consumption of organic foods which potentially restrict buyers from purchasing products which fall under this category. As reported by Charles, the single most significant factor in this case is related with the relatively high costs of organic foods which essentially deter the masses from declining to consume processed items which possess a much lower price tag. Moreover, other aspects that can be linked with this prevalent issue are linked to the distribution of organic foods and the inadequacy of current distribution channels that do not fall under the scope of mass retailing. Given the development of the existing scenario, the purpose of this analysis is to examine Wal-Mart’s prospects in the organic foods industry by applying the recommendations of Porter’s 5 Forces strategic tool to comprehend the state of the industry in a more comprehensive manner and present pertinent recommendations to the company for achieving future success. The arrival of Wal-Mart in the organic foods market could not be retained for a significant period of time because the company was forced to approve the closure of its organic foods brand by 2007. Thus, as a consequence of this action critics and industry analysts began to raise the question as to whether the mass retailer possesses the capability to make organic food cheap and affordable for the mass market that it serves. As noted previously, the factor of high pricing remains one of the most important considerations with regard to the notion of popularizing organic food consumption amongst the larger population. Thus, gaining advantage by enhancing cost efficiency can be deemed as one of the most critical factors for acquiring success in the market. Secondly, it is also important to understand that customer motivations for paying more for organic foods must be recognized and highlighted to comprehend the demands of the audience and address them accordingly. This notion postulates that a customer’s decision for switching to an organic diet holds a deeper meaning that maybe linked with the idea of adopting a healthier, greener and environmentally friendly lifestyle which safeguards both human health and the environment itself. Furthermore, as food consumption is one of the most appropriate methods of promoting a ‘greener’ lifestyle it can be recognized that a customer’s decision for opting for organic foods holds more profound meanings and thus, if organic products are promoted amongst the masses and made affordable via mass retailing by Wal-Mart then it would not be difficult for consumers to take decisions regarding the consumption of organic foods as a part of their daily diet. Examining Wal-Mart’s recent decision to venture into the organic food market with the Wild Oats brand, CNN reports that the company aims to promote their products on the basis of a unique selling point of competitive pricing. This view asserts that the launch of the Wild Oats brand is going to mark the company’s achievement of focusing on the price element of the product as these items would be sold at a price which is 25 per cent lower than other organic food product lines which are being sold across the nation, thereby, corresponding with the prices of foods that fall under the non-organic category (CNN). Before applying the strategic tool of Porter’s 5 Forces to examine the attractiveness of the organic food industry it is important to establish the components or forces which comprise of the renowned model for strategic management. These forces are that of 1) rivalry amongst existing companies 2) threat of new entrants in the industry 3) bargaining power held by buyers 4) threat of substitute products and 5) bargaining power held by suppliers. The assessment of each separate factor or force corresponds with a specific determinant which can be identified as an indicator of the industry’s attractiveness. The first noted determinant which can be incorporated in the discussion to draw conclusions regarding the status of competition in the organic food industry is that of industry growth rates which must be classified for the industry under consideration. According to a report published by Fox News, the present scenario with regard to Wal-Mart’s organic food business suggests that the retailer is experiencing an increase in sales volume for its product lines however; the issue of high pricing has limited the scale of this growth potential. This aspect essentially suggests that because of the issue of pricing the industry growth rates have remained relatively slow as a consequence of which the existence of rival firms is enhancing execution of competitive strategies to achieve designated objectives and goals. Another critical element which is associated with this discussion is that of elevated fixed costs that remain constant at all levels of output. For example, Cormier reports that the issue of high fixed costs and variable costs in the organic food industry stems from the requirement of incorporating expensive farming procedures and techniques to attain high quality produce. In terms of fixed cost, the specific factors of production are that of farming facilities and land. On the other hand, rising variable costs for organic farming are linked with the requirement of hiring relatively skilled labor with prior experience in the industry and expertise in this area of farming (Cormier). Therefore, the combination of both these elements signifies the presence of high rivalry between Wal-Mart and other competitors for their organic product line. The next factor is that of the possibility of new entrants which is also dependent upon several factors. The primary factor in this case however, is linked with the requirement of possessing large economies of scale whereby, the average cost per unit may be reduced to enhance cost efficiency across the operations. In the case of Wal-Mart’s organic product line under the brand name of Wild Oats, the company is utilizing its longstanding name in the market and resources to guarantee the provision of 25 per cent lower pricing as compared to competing brands (CNN). Charles reports that Wal-Mart’s collaboration with Wild Oats is emerging as a result of incorporating the manufacturing economies of scale of Wal-Mart that are derived by benefitting from the renowned and large-scale distribution channel which the company owns and manages. Moreover, the advancement of manufacturing production scale is also said to play a pivotal role in Wal-Mart’s venture because large scale production would be able to respond to the demands of a mass market (Charles). At the same time however, it is important to highlight that for attaining a large scale to accommodate the management of organic food production the capital requirements become escalated thereby, increasing the initial investment which has to be injected by potential new entrants. Therefore, as a result of this factor any new entrants are discouraged from entering the industry which further enhances the attractiveness of the industry for companies such as Wal-Mart. Due to the size of Wal-Mart’s operations the firm has been able to maintain a distribution system which complies with international standards and also sets a benchmark for maintaining alternative models for supply chain management (Charles). As a consequence, the possibility of replicating this distribution system may become difficult for new companies thereby, reducing the chances of new entrants and advancing industry attractiveness. The bargaining power of buyers in the industry can be examined through the incorporation of two distinguishable elements which are that of buyer volume and the cost of switching. In the case of the organic food industry, the existing buyer volume can still be classified as low because the notion of consuming organic produce is still not popular amongst the masses and therefore, it is practiced on a small scale by a relatively smaller faction of health conscious consumers. This view indicates that Wal-Mart’s activity in the industry can be classified as favorable and beneficial for the company because the buyers are not in a position to dictate prices and influence the company in any manner. However, Cormier reports that organic produce has to be sold with high price tags because of the complexity of the farming process and the integration of overheads that are borne by the farmer and are later translated into prices. Thus, the customer’s ability to switch to processed foods that are cheaper and more affordable because of mass production possesses lower costs as a consequence of which the overall attractiveness of the industry maybe negatively impacted. However, perhaps the most significant attribute of organic foods is that they are a differentiated product for their characteristics cannot be compared to that of processed food items. Due to the adoption of ‘greener’ farming practices for their making, organic foods provide greater nutritional value to consumers while, securing and protecting the environment by avoiding dangerous farming practices which damage the ecosystems. The existence of this factor suggests that industry attractiveness is enhanced because consumers cannot switch to substitutes which provide comparable value and benefits. However, if the additional health benefits of organic food are ignored it is still possible for consumers to switch to processed foods yet the presence of substitutes for organic foods is negligible or very low as compared to other products. As stated by Cormier, supply is one of the most integral aspects of consideration with regard to the organic food industry. This notion is largely associated with the presence of numerous small suppliers or individual farmers who maybe operating a small scale organic farming venture as opposed to a scale which can produce significant quantities of produce in large quantities at once. The evaluation of this element therefore, indicates that individual suppliers or small scale farming collaborative do not possess the capabilities or resources to transform into direct competitors of firms such as Wal-Mart. Therefore, the attractiveness of the industry is enhanced as a consequence because existing firms have the ability to control the relationships with their suppliers, manage contracts, pricing agreements and the extent of collaboration with minimum or negligible influence from the suppliers. However, in case of Wal-Mart the nature of the organic product line is that it is being established in collaboration with the Wild Oats brand name and therefore, to maintain the consistency of the produce the company is expected to maintain a single supplier rather than switching between a number of suppliers for the sake of customer loyalty and preference. Moreover, any disruption in supply may impact the stock in negative manner thereby, rendering the company incapable of meeting strict demand in a given period and making it impossible to respond to any unplanned fluctuations in demand. Therefore, this assessment indicates that the switching costs in this case would be high and it is favorable to maintain a steady supply source to retain customers. In conclusion, the recommendations to Wal-Mart for successfully capturing the industry comprise of launching a new marketing and advertising concept for the firm titled ‘Greening Walmart’. The purpose of this campaign is to promote the consumption of organic foods amongst the firm’s existing consumers who currently prefer processed foods. The campaign would involve offering sales promotions and discounts to loyal customers of the firm for trying out Wal-Mart’s Wild Oats organic product line thereby, assisting them in making a permanent switch to organic food. The second recommendation involves launching cost reduction measures within the supply chain including a reduction in local distribution costs and expenses which are incurred for transporting the produce from the farm to the primary premises. Moreover, the firm should also focus upon launching a collaboration with local schools to introduce the concept of healthy eating amongst the youth by selling organic food items during school lunch hours at the premises. This campaign would target both children and their parents. Works Cited Charles, D. Can Wal-Mart Really Make Organic Food Cheap For Everyone?. The Salt. 19th April 2014. Accessed online at [25th May, 2014] CNN. Wal-Mart goes all, like, granola on us. CNN Fortune. 10th April, 2014. Accessed online at [25th May, 2014] Cormier, J. Skeptical of Wal-Mart’s New Organic Line?. Care2. 17th April, 2014. Accessed online at [25th May, 2014] Fox News. Wal-Mart and Wild Oats unveil cheaper organic line. Fox News. 10th April, 2014. Accessed online at < http://www.foxnews.com/leisure/2014/04/10/wal-mart-teams-up-with-wild-oats-to-sell-lower-priced-organic-food-offering/> [25th May, 2014] Read More